Mises Wire

What Hayek Got Wrong About Keynes

Was Keynes, as Hayek maintained, a “brilliant scholar”? “Scholar” hardly, since Keynes was abysmally read in the economics literature: he was more of a buccaneer, taking a little bit of knowledge and using it to inflict his personality and fallacious ideas upon the world, with a drive continually fueled by an arrogance bordering on egomania. But Keynes had the good fortune to be born within the British elite, to be educated within the top economics circles (Eton/Cambridge/Apostles), and to be specially chosen by the powerful Alfred Marshall.

“Brilliant” is scarcely an apt word either. Clearly, Keynes was bright enough, but his most significant qualities were his arrogance, his unlimited self-confidence, and his avid will to power, to domination, to cutting a great swath through the arts, the social sciences, and the world of politics.

Furthermore, Keynes was scarcely a “revolutionary” in any real sense. He possessed the tactical wit to dress up ancient statist and inflationist fallacies with modern, pseudoscientific jargon, making them appear to be the latest findings of economic science. Keynes was thereby able to ride the tidal wave of statism and socialism, of managed and planning economies. Keynes eliminated economic theory’s ancient role as spoilsport for inflationist and statist schemes, leading a new generation of economists on to academic power and to political pelf and privilege.

A more fitting term for Keynes would be “charismatic”—not in the sense of commanding the allegiance of millions but in being able to con and seduce important people—from patrons to politicians to students and even to opposing economists. A man who thought and acted in terms of power and brutal domination, who reviled the concept of moral principle, who was an eternal and sworn enemy of the bourgeoisie, of creditors, and of the thrifty middle class, who was a systematic liar, twisting truth to fit his own plan, who was a Fascist and an anti-Semite, Keynes was nevertheless able to cajole opponents and competitors.

Even as he cunningly turned his students against his colleagues, he was still able to cozen those same colleagues into intellectual surrender. Harassing and hammering away unfairly at Pigou, Keynes was yet able, at last and from beyond the grave, to wring an abject recantation from his old colleague. Similarly, he inspired his old foe Lionel Robbins to muse absurdly in his diary about the golden halo around Keynes’s “godlike” head. He was able to convert to Keynesianism several Hayekians and Misesians who should have known—and undoubtedly did know—better: in addition to Abba Lerner, John Hicks, Kenneth Boulding, Nicholas Kaldor, and G.L.S. Shackle in England, there were also Fritz Machlup and Gottfried Haberler from Vienna, who landed at Johns Hopkins and Harvard, respectively.

Of all the Misesians of the early 1930s, the only economist completely uninfected by the Keynesian doctrine and personality was Mises himself. And Mises, in Geneva and then for years in New York without a teaching position, was removed from the influential academic scene. Even though Hayek remained anti-Keynesian, he too was touched by the Keynesian charisma. Despite everything, Hayek was proud to call Keynes a friend and indeed promoted the legend that Keynes, at the end of his life, was about to convert from his own Keynesianism.

Hayek’s evidence for Keynes’s alleged last-minute conversion is remarkably slight—based on two events in the final years of Keynes’s life. First, in June 1944, upon reading The Road to Serfdom, Keynes, now at the pinnacle of his career as a wartime government planner, wrote a note to Hayek, calling it “a great book…morally and philosophically I find myself in agreement with virtually the whole of it.” But why should this be interpreted as anything more than a polite note to a casual friend on the occasion of his first popular book?

Moreover, Keynes made it clear that, despite his amiable words, he never accepted the essential “slippery slope” thesis of Hayek, namely, that statism and central planning lead straight to totalitarianism. On the contrary, Keynes wrote that “moderate planning will be safe if those carrying it out are rightly oriented in their minds and hearts to the moral issue.” This sentence, of course, rings true, for Keynes always believed that the installation of good men, namely, himself and the technicians and statesmen of his social class, was the only safeguard needed to check the powers of the rulers (Wilson 1982, pp. 64ff.).

Hayek proffers one other bit of flimsy evidence for Keynes’s alleged recantation, which occurred during his final meeting with Keynes in 1946, the last year of Keynes’s life. Hayek reports,

A turn in the conversation made me ask him whether or not he was concerned about what some of his disciples were making of his theories. After a not very complimentary remark about the persons concerned he proceeded to reassure me: those ideas had been badly needed at the time he had launched them. But I need not be alarmed: if they should ever become dangerous I could rely upon him that he would again quickly swing round public opinion—indicating by a quick movement of his hand how rapidly that would be done. But three months later he was dead. (Hayek 1967, p. 348)1

Yet this was hardly a Keynes on the verge of recantation. Rather, this was vintage Keynes, a man who always held his sovereign ego higher than any principles, higher than any mere ideas, a man who relished the power he held. He could and would turn the world, set it right with a snap of his fingers, as he presumed to have done in the past.

Moreover, this statement was also vintage Keynes in terms of his long-held view of how to act properly when in or out of power. In the 1930s, prominent but out of power, he could speak and act “a little wild”; but now that he enjoyed the high seat of power, it was time to tone down the “poetic license.” Joan Robinson and the other Marxo-Keynesians were making the mistake, from Keynes’s point of view, of not subordinating their cherished ideas to the requirements of his prodigious position of power.

And so Hayek too, while never succumbing to Keynes’s ideas, did fall under his charismatic spell. In addition to creating the legend of Keynes’s change of heart, why did Hayek not demolish The General Theory as he had Keynes’s Treatise on Money? Hayek admitted to a strategic error, that he had not bothered to do so because Keynes was notorious for changing his mind, so Hayek did not think then that The General Theory would last. Moreover, as Mark Skousen has noted2 , Hayek apparently pulled his punches in the 1940s in order to avoid interfering with Britain’s Keynesian financing of the war effort—certainly an unfortunate example of truth suffering at the hands of presumed political expediency.

Later economists continued to hew a revisionist line, maintaining absurdly that Keynes was merely a benign pioneer of uncertainty theory (Shackle and Lachmann), or that he was a prophet of the idea that search costs were highly important in the labor market (Clower and Leijonhufvud). None of this is true. That Keynes was a Keynesian—of that much derided Keynesian system provided by Hicks, Hansen, Samuelson, and Modigliani —is the only explanation that makes any sense of Keynesian economics. Yet Keynes was much more than a Keynesian. Above all, he was the extraordinarily pernicious and malignant figure that we have examined in this chapter: a charming but power-driven statist Machiavelli, who embodied some of the most malevolent trends and institutions of the 20th century.

[Excerpted from Keynes, The Man]

  • 1Harry Johnson recorded a similar impression, at Keynes’s presentation of his posthumously published paper on the balance of payments, in which Johnson concludes that Keynes’s reference to “how much modernist stuff, gone wrong and turned sour and silly, is circulating in our system,” refers to the left-Keynesian, or Marxo-Keynesian, Joan Robinson (Johnson 1978, pp. 159n).
  • 2In Chapter 1 of Keynes, the Man
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